EUR/GBP gathers strength above 0.8750, all eyes on ECB and BoE rate decicions

Finance

EUR/GBP gathers strength above 0.8750, all eyes on ECB and BoE rate decicions

The EUR/GBP cross gathers strength to near 0.8785 during the early European session on Thursday. The Pound Sterling (GBP) weakens against the Euro (EUR) on softer-than-expected UK inflation data and firming Bank of England (BoE) rate cut bets. All eyes will be on the BoE and the European Central Bank (ECB) interest rate decisions later on Thursday.

The UK headline Consumer Price Index (CPI) increased 3.2% YoY in November, compared to a rise of 3.6% in October, according to the Office for National Statistics (ONS) on Wednesday. This figure came in softer than the 3.5% expected. Meanwhile, the core CPI, excluding volatile food and energy items, rose 3.2% YoY in the same period, compared to the previous reading and market consensus of 3.4%.

The GBP remains on the defensive against the EUR as interest rate futures priced in a near 100% probability of a quarter-point rate cut at its December meeting on Thursday and a higher chance of multiple rate cuts in 2026.

On the other hand, the ECB is widely expected to keep its policy rates steady at its December policy meeting on Thursday. The central bank has kept its key deposit rate on hold at 2% since July. The growing acceptance that the ECB is done cutting interest rates could provide some support to the EUR against the GBP in the near term.

Remarks from ECB policymakers Isabel Schnabel and Philip Lane have fueled some speculation about a rate hike late next year. However, most economists polled by Reuters expect the ECB to leave rates unchanged through 2026 and 2027, although the forecast range for the latter year was wide at 1.5%-2.5%.